By Melissa Luz T. Lopez
THE International Monetary Fund (IMF) sees the Philippines sustaining “very strong” growth over the next few years even as it tempered its forecast for 2017, as it stressed the need for tax reform to raise fresh funds and bolster investor optimism in the country.
IMF representatives visited Manila on July 26-Aug. 9 for their annual surveillance of the member-economy, as required by Article IV of the multilateral lender’s articles of agreement.
Representatives of the Washington-based lender checked various economic and financial developments and discussed policy reforms with government and central bank officials.
Following the health check, the multilateral lender said Philippine gross domestic product (GDP) growth will likely clock 6.6% this year — slower than the 6.8% projection announced in April and down from 2016’s actual 6.9% climb — as robust domestic demand and a recovery in exports are seen to support further expansion.
“Overall, we are very optimistic about growth in the Philippines,” IMF mission chief Luis E. Breuer said in a press briefing at the Bangko Sentral ng Pilipinas (BSP) headquarters in Manila yesterday.
“Growth in the first quarter was a bit slower than expected, so on a numerical average this reduces the growth. [But] in general, we see the economy growing close to potential and that is very good.”
The Philippine economy expanded by 6.4% last January-March, slowing from the 6.8% clocked in the first quarter of 2016 which received a one-time boost from election-related spending.
If realized, the IMF forecast will enable the Philippines to hit its 6.5-7.5% growth goal for the entire year. Socioeconomic Planning Secretary Ernesto M. Pernia has said that he expects growth to race faster for the rest of 2017, riding on a pickup in government spending as infrastructure projects are rolled out.
IMF also expects growth to hold at 6.8% over the medium term, cementing the country’s position as a growth leader in Asia.
International credit raters and bank economists have expressed confidence that the Philippines will sustain above-6% GDP growth in the coming years, even as some flagged rising political risks and policy uncertainty as a concern.
Key to sustaining the Philippines’ growth momentum is the enactment of tax reform, the IMF said, which will support the current government’s “rightfully aggressive” spending plans for infrastructure, preserve investor confidence and help insulate the economy from external economic and financial shocks.
“If we see broadly a tax reform that generates around two percentage points of GDP in all of its phases over the medium term, we would say that’s a very successful tax reform,” Mr. Breuer said, adding: “We have to wait to see what happens in Senate” where the first of up to five tax reform packages awaits approval in time for enforcement starting January next year.
Budget reform and updates to the central bank charter are also significant policy reforms, the Washington-based lender said.
Broad policy continuity has likewise sustained confidence, the IMF said, with the raging conflict in Marawi City not a cause for concern for now.
“We have no evidence that confidence has been weakened because of any regional security events. This is what we heard, and when we look at the numbers — including private investments and foreign direct investments — the numbers are quite buoyant,” Mr. Breuer added, referring to the extended declaration of military rule in Mindanao up to yearend as government forces struggle to retake Marawi from Islamic militants.
The country’s economic landscape — with a strong growth momentum and tame inflation — also provides a “favorable” setting to raise spending on infrastructure and basic services.
“The authorities are appropriately focusing on investment in infrastructure and human capital, sound urban development and addressing regional disparities, and access to finance including capital market development,” the IMF said separately in a statement.
The multilateral lender added that there is no need for the central bank to raise interest rates just yet since inflation has remained within the 2-4% target band, but noted that strong credit growth will have to be monitored to prevent overheating.
Plans to trim banks’ reserve requirement will have to be carefully timed, Mr. Breuer said.
In a statement, Budget Secretary Benjamin E. Diokno said the national government will continue to pursue measures to “promote rapid and equitable growth.”